Cost Allocation And Cost Management

Apple Valley Family Practice is a medical practice with four locations in the Minneapolis/St. Paul area. The clinical staff consists of 20 physicians, all of whom practice in one or more areas of family medicine, and 46 physician extenders and nurses.

Managerial accounting is essential for decision making. Making the best choice depends on the manager's goals, the anticipated results from each alternative, and the information available when the decision is made (Schneider, 2012). The different techniques associated with managerial accounting are very helpful in the decisions that need to be made. In order to truly understand decision making with managerial accounting one must first discern exactly what managerial accounting means and some of the techniques associated with it. The definition of managerial accounting will be discussed along with the techniques of cost management techniques, budgeting, and quality control.

The common cost allocation methods which are used most often by health care organizations are the direct and the step- down methods. These methods are commonly used to help determine the costs of the services provided by the health care organizations. It is important to these agencies to know the costs of operation for each department. They can make smart business decisions on whether they can make investments, determine which department is making a profit or losing one, make improvements where necessary and have a sense of foundation for the future. There are other common cost allocation methods for patients-level costs, such as relative value units (RVU), ratio of cost to charges (RCC) and activity based costing (ABC) which gives us

Your company’s solution should follow and be judged by the following criteria. Accurate Profitability, by allocating costs more precisely you will be able to trace and record each customer’s profits and losses. Future Potential of Customers, with a more accurate method of allocating costs and profitability your company will have a greater understanding when making decisions on the future potential of each

Cost of 401’s – we have 3,000 in inventory so 3,000 x 0.4 = 1,200

Allocating overhead costs is one of the important tasks and is necessary to be done by management accountant. One key reason is that in term of pricing strategies, many firms decide their products’ selling price based on their cost. And the selling price has to cover all the costs and profit.

Bhimani, A., Horngren, C., Datar, S., Rajan, M. et al. (2012) Management and Cost Accounting. 5th ed. Edinburgh: Prentice Hall, p.369 - 378.

The current simple allocation approach is insurance premiums and sales commissions are tracked at the legal business unit entity and product line level to properly compensate sales agents. Certain support functions are only accounted for at the corporate level and are subsequently allocated to product lines and business units according to the number of policies outstanding. Along with the recent development trend, Hampton thinks that this approach cannot reflect the claim on resources that is made by various business units and product lines. She also realizes that although sales volume has increased, profitability declines. So a new approach is necessary and extremely urgent. Better and appropriate allocation approach can help management obtain more accurate insight into product profitability, make correct product pricing decisions and so on.

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production

The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making

Assigning the overhead costs to the products shows how profitable the products are after deducting all cost. However, it is important to find the appropriate method of overhead cost allocation. In Sippican’s case the traditional accounting method is used, which does not reflect the real resource usage of the different product lines. The correct method in this case would be to apply the time-driven ABC approach for cost allocation. Such method apart from showing the actual profitability after all cost deductions also depicts the differences in resource usage rates between the products and, thus, allows for identification of cost drivers. A contribution margin

After analyzing the costs function wise the firm should analyze the costs by each marketing entity – each product, each territory etc. For this purpose, the firm must put in place an accounting system that facilitates the assignment of functional expenses to the various entities like products, markets and customers.

Oak City is an interdisciplinary case that involves cost allocation and determination issues in a

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.